SHANGHAI, October 16, 2012 /PRNewswire/ -- China Precision Steel, Inc. (NASDAQ: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its financial results for the fourth quarter and fiscal 2012 year ended June 30, 2012.
Fourth Quarter 2012 Highlights
Full Year 2012 Highlights
"Business confidence and manufacturing activities continue to be strained as concerns linger regarding the prolonged uncertainty from the euro debt crisis and sharper than expected slowdown in China. The fallout of this challenging economic environment has been a softening in global steel demand along with a sharp decline in steel prices. As a result, we experienced negative gross margins for the fourth quarter and full year ended June 30, 2012 as we were unable to recover the full cost of our raw materials which was purchased in advance of the decline in steel prices," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "Facing the challenging economic environment, we recognize the need to increase focus on our more competitive specialty high-carbon steel products and lower our production costs. As such, we have begun to implement a series of measures to cut costs and increase profitability in order to strengthen our financial position."
Revenue for the fourth quarter of fiscal year 2012 was $37.6 million, down 18.2% from $46.0 million in the fourth quarter of fiscal year 2011. Sales volume in the fourth quarter of fiscal year 2012 decreased 3.9% to 47,212 tons from 49,104 tons, period-on-period, while average selling price per ton declined 15.0% from $938 to $797, period-on-period. The decrease in revenue and sales volume period-on-period is primarily due to softening demand for the Company's high carbon, cold-rolled steel used in the production of automobile components, due to a slowdown of the Chinese automobile industry during the year, combined with the decrease in average selling price. Sequentially, revenue increased 27.6% from $29.5 million in the third quarter of fiscal year 2012 and sales volume increased 21.4% from 38,898 tons, as demand for high-carbon steel products slightly rebounded from the low in the third quarter. High carbon and low carbon products accounted for 23.2% and 75.6% of sales, respectively, compared to 28.3% and 64.9%, respectively, from the same period of the prior year.
Gross loss in the fourth quarter was $3.0 million, compared to gross profit of $1.7 million in the fourth quarter of fiscal year 2011. Gross margin was (7.8%), compared to a gross profit margin of 3.7% in the same period a year ago. The decline is gross margin is mainly due to the decline in average selling price per ton of 15.0%, while the average cost per ton declined only 4.1%, period-on-period, resulting in compression of gross margin and a gross loss. The high average cost per ton is a result of the locked-in raw material cost purchased during the past twelve months. The Company has been renegotiating with some of its major suppliers to get a partial refund of its advances to suppliers in an effort to mitigate the locked-in raw materials cost.
Selling expenses for the fourth quarter of fiscal year 2012 were $37,570 or 0.1% of revenue, compared to $61,983, or 0.1% of revenue, in the fourth fiscal quarter of 2011. Administrative expenses were $676,655, or 1.8% of revenue, compared to $330,884, or 1.9% of revenue in the same period a year ago. China Precision Steel recognized $4.5 million in allowance for bad and doubtful debts in the fourth quarter of fiscal year 2012, which is comprised of provision for accounts receivable bad debts in the amount of $2.2 million and provision for advance to suppliers bad debts in the amount of $2.3 million. Depreciation and amortization expenses for the quarter were $53,834, or 0.1% of revenue, down from $80,466, or 0.2% of revenue, in the same period a year ago.
Operating loss for the fourth quarter was $8.2 million, compared to operating income of $1.2 million in the same period a year ago.
Net loss for the fourth quarter of fiscal year 2012 was $9.0 million, compared to a net income of $0.3 million in the same period of the prior year. Fully diluted loss per share were $2.32, compared to $0.07 in the fourth quarter of fiscal year 2011, after adjusting for the 1:12 reverse stock split which effected on August 27, 2012.
Fiscal Year 2012 Results
Revenue for fiscal year 2012 was $143.0 million, down 5.4% from revenue of $151.2 million in fiscal year 2011. High carbon and low carbon products accounted for 18.3% and 79.3% of sales, respectively, compared to 23.3% and 69.5%, respectively, in the prior year. In fiscal year 2012, sales of low carbon, cold-rolled steel increased to $105.9 million, or 74% of total sales, from $100.6 million, or 66% of total sales, year-on-year. International sales represented 5% of total sales, up from 3% in fiscal year 2011. Gross loss was $5.8 million compared to a gross profit of $6.0 million in fiscal year 2011. Gross margin was (4.1%), compared to gross margin of 3.9% a year ago. Operating loss was $13.9 million, compared to operating income of $3.4 million in fiscal year 2011. Net loss was $16.9 million, compared to a net income of $0.3 million a year ago. Fully diluted loss per share was $4.37, compared to fully diluted earnings per share of $0.07 for fiscal year 2011.
Financial Condition
As of June 30, 2012, China Precision Steel had $1.6 million in cash and cash equivalents, total liabilities of $66.7 million and working capital of $48.9 million. Stockholders' equity was $118.9 million, compared to $133.5 million as of June 30, 2011. Net cash provided by operating activities was $1.8 million for the year end fiscal 2012.
Recent Events
On August 27, 2012, China Precision Steel completed a reverse stock split of its common stock at a ratio of 1 share of common stock for every 12 shares, to regain compliance with the NASDAQ minimum bid price requirements. Since the reverse stock split, the bid price for the Company's common stock has been above $1.00 per share.
Business Outlook
China Precision Steel is taking measured steps to adjust to the current market conditions by re-focusing on its more competitive products and niche capabilities, including producing more ultra-thin low-carbon and high-strength high-carbon products, streamlining production by reducing the number of workers, and improving working capital efficiency by increasing turnover of advances to suppliers and accounts receivables. Total Company backlog as of June 30, 2012 was $6,629,115.
"The global economic environment remains challenging, especially for steel manufacturers as we believe uncertainty and volatility has become the norm for the industry in the past year. We are working to adjust to the market conditions by manufacturing only products that will help enhance our gross margin, as well as taking steps to improve our cost position and bottom line," continued Mr. Chen. "As the world's largest steel producer and consumer, China, has responded to the slowdown by launching a series of pro-growth policies and fast-tracking infrastructure projects with the intention of reinvigorating the economy and bolstering the steel industry. As these projects are expected to be implemented in 2013, we remain focused on controlling the factors that we can and carefully executing our business strategy to make China Precision Steel more sustainable and endure through this period of uncertainty and difficulty."
About China Precision Steel
China Precision Steel is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel's high precision, ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products are mainly used in the production of automotive components, food packaging materials, saw blades, steel roofing and textile needles. The Company sells to manufacturers in the People's Republic of China as well as overseas markets such as Nigeria, Ethiopia, Thailand and Indonesia. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong. Additional information can be found at the Company's website http://chinaprecisionsteelinc.com.
Conference Call
China Precision Steel will host a conference call on Tuesday, October 16, 2012 at 9:00 am ET to discuss fiscal year 2012 fourth quarter and year end results. To participate in the live conference call, please dial the following number fifteen minutes prior to the scheduled conference call time: 888-419-5570, international callers should dial 617-896-9871; conference passcode is 143 530 34.
If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, October 16, 2012 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 75451753. International callers should dial 617-801-6888 and enter the same passcode.
This conference call will be broadcast live over the Internet and may be accessed by clicking on http://www.chinaprecisionsteelinc.com. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.
Forward-Looking Statements
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by China Precision Steel on its conference call in relation to this release, constitute "forward-looking statements" for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding: the ability of the Company to maintain compliance with the NASDAQ minimum bid price requirements; the ability of the Company to successfully implement planned measures to cut costs and increase profitability and to strengthen its financial position; the likelihood that China's economy will rebound in response to new pro-growth policies and infrastructure projects and that the Company will be able to benefit from any such growth; and predictions and guidance relating to the Company's future financial performance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs but they involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which China Precision Steel is engaged; cyclicality of steel consumption including overcapacity and decline in steel prices, limited availability of raw material and energy may constrain operating levels and reduce profit margins, environmental compliance and remediation could result in increased cost of capital as well as other relevant risks not included herein. The information set forth herein should be read in light of such risks. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
Elite IR
Leslie J. Richardson, Partner
+852-3183 0283
Leslie.richardson@elite-ir.com
-- Financial Tables Follow --
China Precision Steel, Inc. and Subsidiaries | ||||||
Consolidated Balance Sheets | ||||||
June 30, | June 30, | |||||
2012 | 2011 | |||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $1,602,805 | $2,707,754 | ||||
Accounts receivable | ||||||
Trade, net of allowances of $3,231,613 and $1,063,620 | ||||||
at June 30, 2012 and 2011, respectively | 59,116,931 | 41,335,759 | ||||
Bills receivable | 173,089 | 201,133 | ||||
Other | 1,117,243 | 1,420,192 | ||||
Inventories | 15,516,220 | 25,077,449 | ||||
Prepaid expenses | 668,867 | 633,416 | ||||
Advances to suppliers, net of allowance of $4,623,323 and | ||||||
$1,724,275 at June 30, 2012 and 2011, respectively | 37,384,684 | 50,034,590 | ||||
Total current assets | 115,579,839 | 121,410,293 | ||||
Property, plant and equipment | ||||||
Property, plant and equipment, net | 67,752,991 | 75,311,221 | ||||
Construction-in-progress | 233,512 | 64,762 | ||||
67,986,503 | 75,375,983 | |||||
Intangible assets, net | 1,880,129 | 1,892,249 | ||||
Goodwill | 99,999 | 99,999 | ||||
Total assets | $185,546,470 | $198,778,524 | ||||
Liabilities and Stockholders' Equity | ||||||
Current liabilities | ||||||
Short-term loans | $27,246,477 | $27,370,648 | ||||
Long-term loan - current portion | 16,200,000 | 3,600,000 | ||||
Accounts payable and accrued liabilities | 6,772,892 | 5,599,323 | ||||
Advances from customers | 2,253,956 | 2,275,241 | ||||
Other taxes payables | 8,446,373 | 6,297,227 | ||||
Current income taxes payable | 5,756,178 | 5,691,456 | ||||
Total current liabilities | 66,675,876 | 50,833,895 | ||||
Long-term loans | - | 14,400,000 | ||||
Stockholders' equity: | ||||||
Preferred stock: $0.001 per value, 8,000,000 shares | ||||||
authorized, no shares outstanding at June 30, 2012 and | ||||||
2011, respectively | - | - | ||||
Common stock: $0.001 par value, 62,000,000 shares | ||||||
authorized, 3,880,866 issued and outstanding at | ||||||
June 30, 2012 and 2011, respectively | 3,880 | 3,880 | ||||
Additional paid-in capital | 75,685,066 | 75,685,066 | ||||
Accumulated other comprehensive income | 19,097,295 | 16,822,185 | ||||
Retained earnings | 24,084,353 | 41,033,498 | ||||
Total stockholders' equity | 118,870,594 | 133,544,629 | ||||
Total liabilities and stockholders' equity | $185,546,470 | $198,778,524 | ||||
China Precision Steel, Inc. and Subsidiaries | ||||
Consolidated Statements of Operations | ||||
For the Three Months Ended June 30, 2012 and 2011 (Unaudited) | ||||
2012 | 2011 | |||
Sales revenues | 37,649,588 | 46,045,610 | ||
Cost of goods sold | 40,602,229 | 44,331,601 | ||
Gross (loss)/profit | (2,952,641) | 1,714,009 | ||
Operating expenses | ||||
Selling expenses | 37,570 | 61,983 | ||
Administrative expenses | 676,655 | 330,884 | ||
Allowance for bad and doubtful debts | 4,500,020 | 169 | ||
Depreciation and amortization expense | 53,834 | 80,466 | ||
Total operating expenses | 5,268,079 | 473,502 | ||
(Loss)/income from operations | (8,220,720) | 1,240,507 | ||
Other income/(expense) | ||||
Other revenues | 99 | 215 | ||
Interest and finance costs | (830,734) | (719,598) | ||
Total other (expense) | (830,635) | (719,383) | ||
(Loss)/income from operations before income tax | (9,051,355) | 521,124 | ||
Provision for income tax | ||||
Income tax (benefit)/expense | (32,250) | 237,969 | ||
Net (loss)/income | (9,019,105) | $283,155 | ||
Basic (loss)/earnings per share | ($2.32) | $0.07 | ||
Basic weighted average shares outstanding | 3,880,866 | 3,880,866 | ||
Diluted (loss)/earnings per share | ($2.32) | $0.07 | ||
Diluted weighted average shares outstanding | 3,880,866 | 3,880,866 | ||
*Fourth quarter 2011 earnings per share and weighted average shares outstanding reflect the 1:12 reverse stock split on August 27, 2012. | ||||
China Precision Steel, Inc. and Subsidiaries | ||||
Consolidated Statements of Operations | ||||
For the Years Ended June 30, 2012 and 2011 | ||||
2012 | 2011 | |||
Sales revenues | $142,973,631 | $151,199,711 | ||
Cost of goods sold | 148,780,427 | 145,234,370 | ||
Gross (loss)/profit | (5,806,796) | 5,965,341 | ||
Operating expenses | ||||
Selling expenses | 209,793 | 263,537 | ||
Administrative expenses | 2,684,432 | 2,039,072 | ||
Allowance for bad and doubtful debts | 5,022,138 | 19,992 | ||
Depreciation and amortization expense | 216,444 | 224,350 | ||
Total operating expenses | 8,132,807 | 2,546,951 | ||
(Loss)/income from operations | (13,939,603) | 3,418,390 | ||
Other income/(expense) | ||||
Other revenues | 89,604 | 3,454 | ||
Interest and finance costs | (3,104,207) | (2,628,567) | ||
Total other (expense) | (3,014,603) | (2,625,113) | ||
(Loss)/income from operations before income tax | (16,954,206) | 793,277 | ||
Provision for income tax | ||||
Current | (5,061) | 536,327 | ||
Total income tax (benefit)/expense | (5,061) | 536,327 | ||
Net (loss)/income | (16,949,145) | $256,950 | ||
Basic (loss)/earnings per share | (4.37) | $0.07 | ||
Basic weighted average shares outstanding | 3,880,866 | 3,880,866 | ||
Diluted (loss)/earnings per share | (4.37) | $0.07 | ||
Diluted weighted average shares outstanding | 3,880,866 | 3,880,866 | ||
China Precision Steel, Inc. and Subsidiaries | ||||
Consolidated Statements of Cash Flows | ||||
For the Years Ended June 30, 2012 and 2011 | ||||
2012 | 2011 | |||
Cash flows from operating activities | ||||
Net (loss)/income | (16,949,145) | 256,950 | ||
Adjustments to reconcile net income to net cash provided by operating activities | ||||
Depreciation and amortization | 9,043,993 | 8,141,320 | ||
Allowance for bad and doubtful debts | 5,022,138 | 19,992 | ||
Inventory provision | 350,817 | - | ||
(Gain)/loss on disposal of property, plant and equipment | (36,993) | 632 | ||
Net changes in assets and liabilities: | ||||
Accounts receivable, net | (19,407,494) | 5,531,665 | ||
Inventories | 9,637,950 | 4,848,044 | ||
Prepaid expenses | (31,828) | (90,302) | ||
Advances to suppliers | 10,632,903 | (35,388,589) | ||
Accounts payable and accrued expenses | 1,620,381 | (5,366,268) | ||
Advances from customers | (60,058) | (1,151,842) | ||
Other taxes payable | 2,041,833 | 2,238,690 | ||
Current income taxes | (32,269) | 33,120 | ||
Net cash provided by/(used in) operating activities | 1,832,228 | (20,926,588) | ||
Cash flows from investing activities | ||||
Purchase of property, plant and equipment, including construction in progress | (340,155) | (5,998,122) | ||
Proceeds from disposal of property, plant and equipment | 56,006 | - | ||
Net cash (used in) investing activities | (284,149) | (5,998,122) | ||
Cash flows from financing activities | ||||
Repayments of short-term loans | (2,697,352) | (837,525) | ||
Net cash (used in) financing activities | (2,697,352) | (837,525) | ||
Effect of exchange rate | 44,324 | 1,433,283 | ||
Net (decrease) in cash | (1,104,949) | (26,328,952) | ||
Cash and cash equivalents, beginning of year | 2,707,754 | 29,036,706 | ||
Cash and cash equivalents, end of year | 1,602,805 | 2,707,754 | ||
